E-cigarettes are starting to receive some real pushback from regulatory agencies, most recently the United States Food and Drug Administration (FDA) order to pull Juul cigarettes off the market.
What’s Happening
The FDA decided to ban products with fruity and sweet flavors over growing concerns that the e-cigarettes were targeting minors in particular. Juul has been the primary company criticized for this marketing tactic as e-cigarettes have become far more common amongst younger audiences.
In fact, the FDA had approved the sale of Juul’s largest competitors' products with the likes of NJOY and Vuse still authorized to remain in the market. The FDA approvals led most to believe Juul would also win its legal battle but growing health concerns, trends in vaping demographics and lawsuits over marketing practices led to the surprise ban of products.
Where Do E-Cigarettes' Head From Here
Juul is obviously the biggest loser in this update but its competitors are preparing for more legal restrictions as health concerns are growing in a manner not totally unique from the progression of concerns about conventional cigarettes. Originally e-cigarettes were seen by many as a healthier alternative to smoking that could help smokers eventually kick the addiction, but the narrative on that has changed dramatically. Acute lung-damaging illness is just one primary health risk of vapes that have led to massive pushback against the products.
The biggest concern is a new generation of people addicted to nicotine products 1 in 5 high school students had reported using e-cigarettes in the past month back in 2018. That number has likely only grown since based on current trends including the effects of anti-Covid measures could have had on young adults that were not physically in school for an extended period of time. The popularity in younger generations is what has led to thousands of lawsuits against Juul for allegedly targeting minors with fruity flavors, flashy ads, and USB type design.
The Bigger Picture
The growing regulations on e-cigarettes and advertising practices is just one part of the ever growing war on tobacco. Just last week the Biden Administration said it plans to develop a rule for a maximum nicotine level in cigarettes. The initiative would reduce nicotine levels to minimal or nonaddictive levels to reduce smoking-related health issues. The FDA is intended to have a standard for a reduced maximum nicotine level by May 2023 with the intended goal of reducing youth use, addiction, and smoking-related deaths.
The move by the Biden Administration along with FDA measures puts additional pressure on the tobacco industry that had hoped e-cigarettes would boost the industry's flagging fortunes.
Effects on Stocks
Naturally as more regulations are placed on tobacco products due to the health risks, tobacco companies are going to struggle. The industry has fought hard and won some legal battles to keep its products stocked but this now a world with no smoking signs in nearly every indoor facility.
Altria Group (MO), which holds a 35% stake in Juul, saw its stock price fall nearly 10% following the FDA decision last week and is down 42% over the last five years. Meanwhile, British American Tobacco (BTI), owner of Vuse, has seen its shares plummet 35% during the past five years even with a 16% increase so far year-to-date. Finally, even the industry leader by market cap, Phillips Morris (PM), stock has fallen 13% the last five years as tobacco companies struggle to hold the same dominance they did in the past.
Investors are leaving the industry along with the consumers as awareness of health risks has continually grown and regulations have limited where to smoke cigarettes and what can be sold going forward as agencies look to change the product so it's not as addictive in terms of what’s in the cigarette or how it is marketed.
